Economic Stability

Proposed Reform of Key EU Rules on Economic Stability a “Missed Opportunity” Oireachtas Committee Report Finds




“But Ireland Has Nothing to Fear from Impact of Likely Changes”



14th June 2010



The current proposals to reform rules that govern the euro are a serious missed opportunity and fail to recognise good budgetary practice in member States, according to a report published today by an Oireachtas Committee.



The report was written on behalf of the Oireachtas European Affairs Committee, by Committee member Senator Paschal Donohoe.



The EU Stability and Growth Pact is a major agreement which limits budget deficits in EU countries. It also dictates the rules for member States of the euro zone. The current European economic crisis means that a reform of the pact is inevitable.



Although the report finds serious shortcomings in the planned changes, it also strongly argues that Ireland should have nothing to fear from the reforms of the pact. It claims if the correct revisions are made to the pact it will actually benefit Ireland in the long run.



Report Author, Senator Paschal Donohoe said;

“The impending reform of the Stability and Growth Pact will have massive implications for Ireland and its economy. Though this report finds that the present proposed reforms are a missed opportunity as they fall short of properly establishing the measures to engender economic success, Ireland has absolutely nothing to fear from the changes.



On the contrary, new rules restricting the limits on current borrowing requirements and structural deficit budgets can only have a positive impact on this country, as these matters have caused huge problems for us.”



Some of the key findings in the report are;



The planned reforms as they stand have serious omissions. More focus needs to be put on surveillance of national budgets and more flexibility on national debt levels.

To improve surveillance procedures, a National Fiscal Council should be established to provide independent forecasts for growth and Government revenues.

Measures of real economic performance like productivity and competitiveness must be included any reforms.

The new pact must recognise overall levels of national debt and display flexibility for economies with more sustainable debt levels. A “one size fits all” approach is flawed.



Senator Donohoe said;

“In Greece, we have already witnessed the disastrous outcomes of lax attitudes towards the public finances and how it can spread to other countries including our own. We should therefore embrace this opportunity to reinforce the EU’s budget rules as such a process will reduce the possibility of the current crisis in Ireland’s fiscal position happening again.



However, the proposals currently under consideration at the EU level have serious omissions that must be addressed. There is a need for more ‘carrot’ as well as a more effective ‘stick’. The new pact must reward good budgetary performance as well as punish those who fail to meet their obligations. It is also essential that measures of real economic performance such as productivity, competitiveness and labour market policies are included in any reform to the pact. A national fiscal council should also be established to improve surveillance by providing independent and transparent economic forecasts.”



The report will be sent to the Ministers of Finance and European Affairs for their consideration.







A copy of report can be viewed at www.oireachtas.ie